 Hi, this is Gerald Friedman, Department of Economics, University of Massachusetts at Amherst. And we're here today to talk about, was it China's fault? I have to giggle because it's something that really should be seen as on the face of it, ridiculous. But this is a serious argument that serious people make, that the U.S. was the victim of China and the financial crisis in the United States was caused by those nasty Chinese and all the money that he had accumulated. Well here's how it goes. Starting in the 1970s, the United States embarked on the neoliberal experiment which included deregulating financial and product markets and allowing free access to U.S. markets. We started trading with the rest of the world much, much more. We started importing winter vegetables from Argentina and Australia. We got the Argentinians and the Australians and the French and the Germans start buying more of our movies and our jet planes. We started doing a lot more international trade. This was a deliberate policy decision, a reversal of two centuries of U.S. economic policy. We had always been a very protected market. We had always fostered manufacturing at the expense of some other sectors, of export-oriented sectors like cotton in the 19th century and Hollywood in the 20th. We had done this with the idea that we want to maintain an industrial base. One of the consequences was that our manufacturing was relatively high-cost, relatively high wages and some of our companies like GM and Ford and Chrysler were a little lazy. So to reduce laziness and encourage these companies to produce better and also to bring down wages, we started eliminating trade barriers. Some people benefited, Hollywood benefited, college professors generally benefited. We're an export industry. We teach people all over the world. People who make stuff lost. Inter-workers, apparel, dressmakers, all sorts of blue collar working people lost out because of the expansion trade. As it happened, something else came in, which is that after the financial crisis in East Asia in 1997 and after the Peso crisis in Mexico in 1995, a lot of other countries decided that they wanted to accumulate more dollars. They didn't want to be caught a short and having to go to the IMF and go to the United States to borrow money in an emergency. They wanted to have more of their own. The way they would accumulate these dollars is by exporting more to the United States. China became very active in this and by 2000, 2004, they had gone from being a net importer from the United States. As late as 1998, they imported more from the United States than they exported. They had become a major exporter. They had whole sectors of their economy. They have whole sectors oriented towards exporting to the United States. They do this with low wages, with lousy working conditions, with all sorts of things that are not agreeable. But they export lots and lots of the United States, accumulating $150 billion in surplus every year. What did they do with all that money? They put most of it into U.S. government securities. It's like they get a low interest rate, but it's safe. What else are they going to do with it? They have that money at this point, $2 trillion or more. They have that money sitting there ready in case there's a problem. Ben Anki, then Ben Anki, head of the Federal Reserve. After the crisis, after the housing market crash in 2007 and the financial crisis in 2007 and 2008, went around looking for scapegoats. Ben Anki turned and said, oh, the problem is the Chinese had driven up the price. I'm making Ben Anki out to be a little worse than he is in this case. He was much more temperate about it. But this is the basic argument that he was making. The Chinese accumulated these huge amounts of surplus from trading with the United States. They put that money back into U.S. markets that drove down interest rates and promoted the housing bubble. I'm sorry, Ben. This one's on you, not on the Chinese. If the Federal Reserve didn't want interest rates to be as low as they were, then they should have raised them. And they were quite capable of doing that, as in fact they were. 2003 interest rates were really low because we were still in a recession coming after 9-11 and after the internet crash. Interest rates were really low. Late 2003, 2004, the feds started pushing up interest rates. 2005, 2006, they kept raising interest rates at a reasonable rate. They weren't paying it. They didn't care whether it was the Chinese or anybody else who held the bonds. They wanted higher interest rates. We got higher interest rates. If they had wanted higher interest rates than that, they could have raised interest rates more. It wasn't China's fault. It was the fault of the United States. It was the fault of the United States that the Chinese accumulated so much money. And it was the fault of the United States that we let the housing market get out of hand until it crashed. So sorry, Ben. Your fault. Your bad. Thank you very much and have a nice day. Bye-bye.